Ero Copper Corp. (ERO) Earnings Call Transcript & Summary

All right. I think it's time for us to get our show on the road, so to speak, because we are on the road. I'd just like to thank you all for coming, both people in attendance here today and people who are joining us over the Internet. Thanks very much to join us today and hear about our operational update and the work that we've been working on over the last year with regards to our company. For those who don't know, know me, my name is David Strang, I'm a co-founder and CEO of Ero Copper Corp. Today in the room, I'm joined by Mike Richard, our Chief Geological Officer and another co-founder of the company. In the back, we have Pablo Mejia, our Chief Geologist. Next to him is Courtney Lynn, our VP, Corp Dev. Brett Hannigan, also part of our Sustainability and Corporate Development and Investor Relations team. He's got a lot of happy ways. Over by the door, most of you know is Makko DeFlippo, our President, and we should be joined by my Co-Founder, Neol Dunn, who is the Chairman of the company. So thanks very much for everybody for coming. To start us off today, we have a very special guest joining us from Brazil, and that is Mansueto Almeida. He is the Chief Economist for BTG Pactual is one of the banks that we work with in Brazil. Mansueto has a great understanding of the Brazilian economy, the political environment that's there, which is very, very timely right now with respect to the presidential elections, and he can give you a little bit of color over the next 20 minutes to half an hour with respect to where Brazil stands right now, what's happened subsequent to the election, his views, with regards to where you see the economy and the political scene moving forward from there. So without further ado, I'll pass over to Mansueto, and Mansueto, please join us and give us your views.

Hello, thank you, Dave, for the introduction. I'll try to talk a little bit about what is happening here in Brazil, what has happened in the last 6 years and the challenges that we have ahead as we just finished our election for President and Brazil elected a new president. But let's start by stressing what happened in Brazil in the last 6 years. I have a presentation here that everybody can have this presentation after my speech. But let me start by saying that in the last 6 years, Brazil approved many important reforms. One of the most important reforms that Brazil approved back in 2016, was a new fiscal strategy that we call is spending cap bill. Brazil, the central govern expenditure in Brazil used to grow by 6% in real term per year from 1997 to 2016. And at the end of 2016, in a new government that came from [indiscernible] process. Brazil approved a spec bill saying that from now on, starting 2017 due 2026 the no financial center board expenditure can only grow according to inflation, meaning that the real growth of the nonfinancial central government expenditure would be 0 starting 2017. And since then, Brazil was able to cut the [indiscernible] and was able to cut a little bit, there are not financial into get expenditure to GDP. In 2018, at the end of Temer's government, the nonfinancial sector government expenditure to GDP was around 19.3% of GDP. And in finish this year with central government expenditure to GDP, lower than 19%. There's never happening in Brazil since 1988, never in a 4-year mandate of any President Brazil never Brazil was able to cut the central government experience to GDP in a 4-year mandate. For the first time ever, you finish this government with a lower central government expenditure vis-a-vis what it was at the beginning of this government. But in addition to that and in addition to the fiscal rule, Brazil approved label legislation reform back in 2017 was very important to cut the judicial fights between enterprise and employees and we approved a new legislation for state companies in Brazil for bidding since 2016 for bidding the appointment of politicians to participate in the Board of Adviser of any federal estate company in Brazil. In 2016, and before that, it was very common to have politician in the board of adviser of the major state company in Brazil. This is not possible anymore because of this new legislation Temer was approved it back in 2016. And in this new government that is finished this year Bolsonaro government at the beginning of this government in 2019, we filed a political base. This government was able to approve 1 of the most important reforms to Brazil that was a very sensitive topic. It was the pension reform. Have in mind that Brazil spends a lot on pensions, around 13% of GDP. And on average, people use it to get retired in Brazil until 2019 at 54 years old, not anymore. In 2019, Brazil approved with the pension reform setting a minimum age for retirement at 62 for women and 65 per man. And in the beginning of government with vote of political base Brazil approved a pension reform back in 2019. And after that, last year, Brazil prove another very important reform, it was the central banking dependency. We just finished a presidential election. We don't know yet who will be the next Brazilian Minister of Finance, but we know for sure who will be the next Brazilian President of Central Bank. It will be exactly the same one that is already there today because for the first time in the last 30 years in Brazil, we now have Central Bank independency. And the next President of the Central Bank is already there because you continue to be the same of this government. It is very good. This is very positive to Brazil, and there is another important reform that 6, 8 years ago was almost impossible even to talk about central banking independency. And after COVID-19, Brazil got the support to approve the Central Bank independency. Moving forward, what else happened in Brazil. We have the COVID-19. This is the best of many of the reform that was talking about. But let's move next, let's see. Let me start by saying that in Brazil as elsewhere, we had a major problem with COVID-19. In 2020, 3 years ago, Brazil had a major problem in terms of the fiscal numbers. We finished 2020 with a primary deficit of 10% of GDP. The book sector primary debt was 10% of the GDP. And because of the huge debt because of the follow-up GDP, the GDP in Brazil went down in 2020 by 3.9%. And because of that, the debt to GDP in Brazil went up sharply. The debt to GDP in Brazil at the end of 2019 was 74.4% of GDP. And at the end of 2020, it went up to 88% of GDP, a growth of 14 percentage points of GDP in just 1 year. If you go back to 2020, everybody was expecting that in 2021 and 2022, Brazil would continue to run primarily deficit that would have a primary deficit for the public sector around 3% of GDP in 2021. And then in 2022, another primary deficit of 1% of GDP. And on the finished 2022, this government with a debt to GDP around 94%. That was the base case scenario. The good news is that this will not happen. Last year in 2021, despite the fact there was still a year, a tough year because of COVID, brazil finished 2021 with a book sector primary sort of 0.7% of GDP. And this year, 2022, despite the fact that Brazil had to cut taxes on fuel, despite that, we finished this year with a primary surplus of 1.3% of GDP. Therefore, instead of finishing this government, we book sector debt around 94% of GDP, we will finish this government in December with primarily -- sorry, with a gross debt around 76.4% of GDP, only 2 percentage points of GDP higher vis-a-vis what it was in 2019. This is the risk it's very good positive numbers because it's a debt that grew by only 2 percentage points of GDP despite of the huge expenditure that the government needed to do during the COVID years. And this -- now we're running a primary surplus. So that's quite very, very positive numbers. In addition to that, let's see here, let's look to the slide here. If you look to economic activity, we have a big surprise. Let me pay attention -- let me show you something quite important in Brazil. As I told you, in 2020, we had foreign GDP of 3.9%. But the investment rate in Brazil in 2020 became flat. The following in the investment rate was very, very small, was only 0.5% And last year, at 2021, the investment rate in Brazil went up by 17%. Last year, we had a growth of 4.6% of GDP -- growth of our GDP grew by 4.6%. And this year, that it's supposed to be a very better year because the interest rates in Brazil are very, very high. I think we will grow around 3%. So if you look to this graph, I wanted to call attention for 2 things. First of all, after the fall in the COVID-19 2020, Brazil, grew 4.6%, 3% this year. Next year, you grow only 0.9%, but because of very high interest rate here in Brazil as in all over the world, the Central Bank has to increase the short-term interest rate in order to fight inflation. But despite a very, very high interest rate, we will continue to grow next year. And we hope that as some of this new government sends the right message concerning fiscal responsibility. We expect that the short-term interest rate started going down by the second quarter of next year, which means that probably [ 2023 ] Brazil will grow around 2.5% to 3% again. So it's good. I mean, I think that after the COVID-19, Brazil has performed a quite well. If you look to the unemployment rate in Brazil, just to give an idea, the last unemployment rate that was released 2 weeks ago by the government, the unemployment rate in Brazil today is 8.7%. I know that it seems quite high. It is about developing countries, but we expected that we finish this year with the employment rate around 8% and the current unemployment rate of 8.7% is the lowest since 2015. So Brazil is in much better shape than what it was 5, 6 years ago. If you look to this graph, you see in 2015 and 2016, 2 red line showing the fall of GDP during the research that Brazil had in 2015 and 2016. And just to give you an idea, this was a major recession in Brazil because 2 consecutive years of GDP falling is not normal in the history of Brazil. The last time that this happened before 2015, '16, was in 1930 and 1931 when the world had the great depression. So not even by the 1980s that you have a problem with inflation, with extend on debt. This never happened before. 2 consecutive years of GDP falling. But after 2015 and 2016, Brazil did a lot of important reform, and I think that we increased our potential GDP. Moving forward, we have a better labor market. The economy is growing. We're fighting inflation. Last year, we had an inflation of 10.7 -- 10.1%. This year, we had into inflation around 5.3%, look to this graph, you can see there. Last year, inflation in Brazil was 10.1%. It was not our highest inflation in 24 years. In 2015, the inflation Brazil was even higher than that, it was 10.7%. And with this new fiscal strategy that I explained to you, the approval of the [indiscernible] in 2016, together with monitory policy were able to cut down inflation to 6% in 2016 and to 2.9% in 2017. Now the fresh went up again to 10.1% last year. But the world has a problem with inflation. It's not only Brazil. The good news is that starting hiking our interest rate last year and nowadays Brazil has probably the highest interest rate in the world then that's why we expected the inflation of the year to be 5.5% or even lower than that, next year, inflation around 5% and in 2024 inflation around 3.5%. And we are assuming that our Central Bank is starting cutting interest rate in the second quarter of next year, pretty marginal for this inflation goes down to the target. In 2024, as I show here in the graph, again, we need to have a new fiscal strategy for the new -- from the new government, but at least now, we're in the right direction. Moving forward, one of the most impromptu problems that Brazil had after the second World War II until recently, until 10, 12 years ago, was that Brazil had a very low stock of foreign reserves to a very high external debt. This is not the case anymore. What we see today in the history of Brazil is completely different -- for the history of Brazil after the second World War II after the second watch trend, Brazil today, it's a net creditor in dollar. There is a graph here about the results in Brazil and they stand on that, let's see if I find here. It is very important to understand what has happened in Brazil. It's not this one. Yes. This one. Great. This one. Look to this graph. This is very, very important. Let's go back to 20 years ago, okay? 20 years ago in 2002, the public sector standard debt in Brazil was $125 billion, and the stock up reserves in Brazil was $38 billion, but out of this $38 billion, $30 billion was along from IMF. Without this loan from IMF, the stock of foreign reserves in Brazil back in 2002 was only $8 billion to external debt of $125 billion. Brazil was a net debt in dollar, but move forward and go to 2022. Nowadays, Brazil has external debt, that is pretty much similar to what it was in 2002. The total public sector external debt in Brazil today is $121 billion value to the stock of foreign reserves in Brazil is $326 billion. Brazil became a net creditor in dollar, it is quite different from all the other Latin America countries. Today in Brazil, when the dollar gets higher the fiscal numbers get better because Brazil nowadays is a net creditor in dollars. This is completely different for, let's say, 50, 60 years of history after second World War II. If we move forward to the next slide, please, there is also some good news concerning our current account debt and our FDI. Last year, the FDI in Brazil was $46 billion the whole 2021 this year, we're expecting an FDI around $92 billion. In this year, the FDI in Brazil, we increased by 100%. If you look to this number, our current account debt vis-a-vis our FDI. Brazil is running a current account debt of less than 2% of GDP. And the FDI, you'll be over 5% of GDP. So it's a very comfortable situation again, completely different from many other countries in Latin America. Nowadays, Brazil has a huge -- a very comfortable stock position with a huge stock of foreign reserves, vis-a-vis the public sector stand on that. And in addition to that, we have a strong FDI. There is more than an enough to finance current account debt which is very, very small, with less than 2% of GDP. If you move forward, we have, again, good news because have in mind that similar to Canada, Brazil is a major exporter of commodities. If you look to the next slide, not -- this is the trade benefit. Last year, we had a huge trade balances. That's a good point. Almost 80% of Brazil exports are linked to the commodity sector and over 50% of the Brazilian exports are food products, iron ore, oil, meat, and soybean. And all these products, the price of this product went up as the COVID-19. So we are in a very, very strong position. Here is the commodities and you'll see here before most important one. So pretty much though, we expect that it will continue to be the case in the following years, which I mean gave us a lot of confidence that we have -- we continue to have a positive effect coming from our balance of trade, our base of payments. So I mean in a nutshell, we have a better label market today than we had before COVID-19. The lowest unemployment rate since 2015, the economy is growing faster probably because we did many important reform as I told you since 2016. In addition to that, this new world with high commodity price helps a lot Brazil, helps our trade benefit our balance of payment and inflation is going down. So in a nutshell, it's a very positive scenario but we have a problem. And what is this problem? Because we just finished a Presidential election campaign in both candidates Europe, the world were complaining about this rule, the fiscal, the spending cap bill. Both candidates were claiming that they want a more fiscal space to increase expenditure at least in the short term to increase a little bit the pulp investment in Brazil. And because of that, because of their certainty concerning what will be the next fiscal rule, the long-term interest rate in Brazil went up sharply. The real long-term interest rate in Brazil nowadays is near 6% is almost the same that it was as back in 2016 before we approve it, the spending cap bill. But let me tell you the following. The next President was already elected was Lula, who was the President of Brazil from 2003 to 2010. Lula is a very popular politician. When he left the government in 2010, after 8 years being the President of Brazil, he left the government in 2010 with a approving rate of 85%. So when he left the government who was very popular, after that, he had some problem with Justice. He was -- he went to prison. But after that, he was released it and he was freed to run for election he was reelected. Lula is a very smart politician. Lula, he knows how to talk with different political parties. He is very charismatic. And we expect that he would not be radical because he got the support of different political parties. They got the support of many good economies, during his political campaign. And do we expect that to try should you movement that you show that he will be fiscal responsible as he was back in 2003, 2006, 2008, and he'll put that together with more strong social policy. But the challenge in Brazil because we cut federal taxes on fuel. And because we cut the VAT taxes on fuel energy and in telecommunication, we expected that next year, Brazil could start a development running a primary debt between 0.5% and 1% of GDP. And in order to control the growth of the gross debt to stop the growth of the gross debt, brazil needs to run a primary surplus around 2% of GDP. So the challenge for the next government is to show to the market how do you translate a primary deficit of 0.5% to 1% of GDP at the beginning of the government next year to a primary surplus of 2% of GDP at least by the end of next government. If the new government shows that shows the fiscal strategy to build that in 4 or 5 years, I think it will be very, very good if the market will set this strategy. And I think long-term interest rate in Brazil, at the beginning of next year, you go down again. But in order for this to happen, we need to see what is this new fiscal strategy of the new government. Many people in the market in Brazil are raising questions whether or not the new government will be, let's say, is ready in term of increasing the exponential or will be fiscal responsible. We don't know yet who will be the new minister of financing, but pretty much, I don't expect a radical government, again, the Congress or was elected in Brazil in both houses in below housing, the upper moving to the right. So it doesn't matter if you ruled the new President elected. If the new President, if he intends to do something radical. The Congress will block that. The Congress in Brazil moving to the right. So I think it will be possible to adopt any radical proposal to send and get approved in the Congress. That's why I'm a little bit optimistic. I think the new President, Lula, I think he'll realize that he need [indiscernible] or to work together with the Congress, Otherwise, he will not do anything and wanted to increase social policy. And in order to do that, you need to present to the Congress a physical strategy that shows that Brazil continue to be responsible with the concern with the fiscal numbers, with the fiscal account that's what I am expecting. But we need to wait a little bit to see who will be the new minster of financial in the new economic team. But again, don't expect any radical change in Brazil what happening in many other countries in Latin America because here in Brazil, different from many other places, the Congress move it to the right and you have a new President and in order for this new President to do anything, he needs the backup, he needs the support of the Brazilian Congress. And the Brazilian Congress, it's very conservative. So I mean, in a nutshell, that's it. I mean Brazil, the main important reform in the next 6 years. the fiscal number, the growth number, the labor market is all better. But in order for Brazil to continue to improve, we need to give a simple message. The Brazilian economy, the new government will continue to be responsible in terms of compliance with the fiscal legislation. We show -- you need to show how we will transform our primary debt expected for next year in a primary surplus in the next 4, 5 years, and of course, continue to do reforms. I'll end my presentation saying stressing that the 2 most important reforms that Brazil needs to do is the tax reform and an administrative reform. The tax reform because Brazil has a very high tax burden, around 34% of GDP, but we have a very complex tax system. So the challenge of the new road map is not to cut the tax board because you don't have fiscal space to do that. But the challenge is to make the taxes in Brazil more simple, and I think that's the key concern of the next government. I've been talking to some of the advisers of the next President. And I think -- I mean they will present a good tax reform proposal. And basically, they wanted to deal with some expression tax regime. And they wanted to probably increase a little bit the income tax on personnel, not on firms, the tax board on firms in Brazil is already very, very high. And nobody wants to increase anymore. It's quite the opposite. They all the advisers of the new President, they recognize they know that the tax board on firm in Brazil is already very high, and they didn't wanted to do that. They won't want to increase. If they put in place a tax on dividend, they will cut the corporate tax and the net effect to be 0. So I mean, I don't expect a growth in the tax board or enterprise in Brazil, probably will have a higher marginal income tax rate that the highest marginal income tax rate in Brazil is 27.5%. This is lower than areas in Canada, many areas in Germany, many areas in the United States. So probably the government you try to create the highest marginal tax rate on workers to some between 30% to 35%. This is not bad at all. This is not something unusual. So I mean, we don't expect any radical tax reform in Brazil and tax reform is very important to make the system more simple. And the last administrative reform. The next goal you try to do an administrative reform to improve the productivity and the efficiency of the public sector. So that's the most important to reform after the pension reform, they were approved back in 2019. That's it. In a big nutshell, and already you guys have asked us to my presentation. It went very, very fast, but there are many numbers in the presentation. And then in a nutshell, that's the big picture about the Brazil economy, and I'm ready to do some Q&A. Thank you very much.

Thanks, Mansueto. Thanks very much. It was a very good comprehensive overview. Are there any questions that anybody may have while we have Mansueto with us?

Have one question from the Internet. This question is, will Brazil sign a free trade agreement with the U.S. on the new administration as FTA countries are preferred under the critical minerals policy of the U.S.?

Did you get that question?

Yes, a little bit. Can you repeat again? Can you repeat it for me?

Sure. Will Brazil sign a free trade agreement with the U.S. under the new administration as FTA countries are preferred under the critical minerals policy of the U.S.?

I'm not sure. I mean, they took a review of up that. But here in Brazil you have a strong support for new trade agreements, especially with U.S. and the Europe tier countries. Brazil is making a lot of airports to become a member of OECD countries. But still worrying to say what would be the strategy in terms of foreign rate agreements with this new administration with U.S., Europe, et cetera. I hope, but I cannot say nothing and no more than that whether or not they will sign a new trade agreement. But let me tell you that some of the advisers of the next President have been talking to, they are quite sensitive, and they understand that he'll need to do that because heavy mind that Brazil needs to increase our investment, private and public. We need to increase our investment on top infrastructure. And we still need to do a fiscal adjustment and the government sector in Brazil doesn't have the needs to increase to boost the public investment. So Brazil in order to grow faster, we need to rely on private investment. So we need to do as much as all trade agreements that we can possibly do. So I hope that the new government will do the trade agreement with U.S., with Europe and continue our effort to become a member of our OECD.

Great. Thanks, Mansueto. I don't think there's any further -- one question here at the front. My apologies.

Thanks for your presentation. I'm not sure if I missed it in the very early part of your presentation because I jumped in a little bit late admittedly. But we've seen in Latin America, we've certainly seen other countries move towards or at least try to think about implementing higher mining royalties and taxes, sort of on foreign and domestic producers. Some of them haven't really worked and maybe that's relevant for the presentation we're at today. Ero obviously operates within the country. Is this something that you think the new administration in Congress would consider? I know there's been rumblings in the past in Brazil, but really no sort of movement. Is it a sector that you think they'd look at or you're not worried?

I don't see any profits. They want to increase the tax on mining in Brazil, but this will be something very, very minor, probably please a little bit the higher test but it's not the same case of other Latin America countries. But here in Brazil, if you ask me what are the 2 major concerns regarding the existing Brazil. First of all, if the VAT tax because in Brazil we have a VAT, but a different legislation for the 27 states. So it's really cover some because every single supernational work in Brazil has a different legislation for VAT tax. So the government wanted to identify that to make it more simple. And in addition to that, we have a problem in Brazil not with the tax or enterprise or oil some in the mining sector or on the oil sector. We have a problem to deal with income tax. We talked of our countries, that's what we pay on income tax, does it depend on your income. It depends on your labor contract. So suppose that you were an employee in a big firm in Brazil, the highest tax rate that you pay as income tax 27.5%. It was supposed to lower a kind of -- that you sell your service to our company, you'll not deploy it you're a subcontractor of that company, or supplier of that company. And then you can be a personal firm without employee and your tax board and you go down to 14.5% of your income. So you have a huge tax benefit being a limited liability company in Brazil. Although you don't have any single employee, yourself, a single company providing our service to different companies, your tax border, you can make $100,000 per month and your tax volume being 14.5% of your income. That's the kind of problem that the new administration will try to fix it. So I mean I don't see debating with this new administration, I don't see any major concern regarding the oil sector, in terms of taxation regarded the mining sector they are much more concerned in unified the VAT tax system in Brazil; and second, finished this special tax regime that benefits many high-income owners in Brazil. So I mean, I don't expect any major change in the taxation in the mining oil sector.

Okay. We're all done with questions. Great. Mansueto, thank you so much again for your time. Hopefully, we'll get to see you when Courtney and I are down in Brazil in December. So have a great day. Thanks so much for joining us.

Thank you, David, congratulation for the company store. I'm very happy I need to be here. Again, thank you very much. Bye.

Thank you. Bye-bye Okay. Well, hopefully, that gives a lot of you who had some interesting thoughts with regards to Brazil, some insights. Mansueto was stating there is very much what we're seeing on the ground and what we're hearing about with President Lula now coming in. And with the Congress, very much moved to the right. The reforms that are going to be done primarily around these areas of taxation and things like that. We don't see anything marked with regards to a movement towards what we've seen in some other Latin American countries towards changes in the mining royalties there are just way too much other bigger issues that they're dealing with right now to think about that. And I think it's also important to recognize outside of iron ore, mining sector is not even in the top 10 industries in Brazil. So with respect to looking at that and looking at significant mining reform, with regards to taxation of royalties, we do not see that as being something that is front and center for the new administration. What is good, though, is certainly this movement to start protecting Amazon again and going against illegal mining, which has proliferated in a number of parts of the country. And I think that's just good overall for the country and for the industry as well. So with that, let's move on to Ero. Hopefully, you all saw last night, we put out our news release with regards to the inclusion of Project Honeypot into our new mineral reserves and resources. We're going to be talking about that today. We're going to give you an update on our progress with regards to our projects, particularly in Tucumã. And then, of course, towards the end, the real juicy stuff that we all like is around the exploration work and particularly giving you a little bit more context with regards to the recent news release we did on nickel and the work we're doing in nickel in the Curaçá Valley. So without further due, let's move forward. and get going. I think you all know who we are. You wouldn't be here if you don't know who we were. We're a high-margin, high-growth clean copper producer based in Brazil. Brazil is our home. We are apart from the 35 employees outside of Brazil. We are -- have got 3,000 colleagues in Brazil. And so very much, we are a Brazilian company. We are very excited about being in Brazil and our future is going to remain in Brazil. And we're going to continue to grow our business in Brazil. We love the country. It's been great for us, and we think there is significant amounts of opportunity being unlocked in the country, particularly in the base metals and copper, which is not known to date as a big copper producing country. But things that we are seeing around the country, et cetera, gives us great hope and great opportunity for growing our business. As I said, we are a company that likes to grow organically, and we'll talk about that with regards to our exploration focus. We have an exploration team, I think, that can compete with the best in the world, led by Mike and Pablo, and we'll talk about some of that later on. Industry-leading returns. We are not a NAV-focused company. We're a returns-focused company. And that drives everything that we do with regards to investments, et cetera. And then, of course, strengthen our balance sheet in order to allow us to fund our growth as we're moving forward. I wanted to start here because I think it's important, some of you know us from when we went public -- but I think it's good to step back in time a little bit to kind of reflect on where this company is today from where it started. And its humble beginnings that the IPO was a company that had a mine life of 6 years 1 that we believe that we could grow extensively and 1 where the average life of mine production at that time was about 23,000 tonnes. Over the course of the next 4 years to 2020, the last time we were able to see everybody in person. This is what our company looked like back in 2020 and the technical report there, growing the business in terms of increasing to average annual copper production around about 42,000 tonnes a year, increasing our life of mine. And this is as today. Continued growth with Project Honeypot, the ability now and growing our business to where we now have a life of 20-plus years, the addition of and growth with the Tucumã operations. And so we've really come along from where we first started in terms of this country. And so real credit to our team in Brazil. Again, I cannot emphasize enough the leadership of Mike and Pablo in exploration because this is built out of all of that work. We didn't buy any of this. We grew this from our internal portfolio. And so we are now greatly placed. We're a company now that has a longer life, long life, good solid production, continuing to grow, and we fundamentally believe that this is now another foundation that if we have this conversation in 4 years again, that we'll be adding to this and growing from this base again. So we're not resting on our laurels. We continue to grow, and we continue to work in growing our business in Brazil. So let's move on and start talking about what happened yesterday and what we're doing, and it needs a little bit of history because it is somewhat unusual that we have been able to add over 8 million tonnes at nearly 1.6% and copper in the upper reaches of a mine that's been operating for over 40 years. How did that happen? Well, when we acquired the company back in 2017, and we did our original 43-101 work on it, we were told that this area had been mined out. And so to ignore, which we duly did and worked and continue to grow our business. Through a couple of changes that we had in the company, what emerged as a really great young mine planning gentleman named Pedro Yamaguchi, and Pedro started to uncover some work that had not been put in the databases, we're still basically on maps and uncovered that what actually happened here was there a significant amount of unmined material. Piecing the history back in what we now know is back in 1984 when they went underground. This was the first area that we're going to mine. This is one of the Super Pods that we've always talked about, high-grade mineralization. They went in here in 1984 with a view of using paste-fill. At that time, this was the largest underground mine and the first underground mine in Brazil to try and use paste-fill, and it was unsuccessful. To the extent that they basically abandoned the area and walked away and we started mining other areas. Their loss was our gain. And so over the course of this year, the engineering team, Mike and Pablo's team have been doing a lot of work to be able to bring project Honeypot into our updated mineral reserves and resources. And as I said, fantastic addition to our business of 8 million tonnes. We've taken a very conservative approach though with regards to our dilution and our mining losses. And the reason we've done that right now is some parts of that area do have old paste that sits there. We're still getting comfortable with regards to mining in and around sort of these areas. It's not uniform throughout, but we've decided to just initially take a conservative approach with regards to the head grades in this area. And so as we get more comfortable as we mine, so you may see that, that grade will go up as we get more comfortable and we start cutting the conservative nature of our dilution factors here. To give you some guidance for the rest of the mine, it's around about 19% to 22%, and we've gone with 32% here. So this is what we've done with regards to project Honeypot and how Honeypot comes in. Now what Honeypot does for us, more importantly, and I said in the news release and my quote, is bring flexibility to our operations, particularly here. So there we go before we go to that, and I'll talk about that. So we've added 185,000 tonnes of copper to our reserves throughout the Valley, as I said, primarily through Honeypot. But what does Honeypot do increases our operational flexibility. As we continue to mine and we have this area now, it allows us to start to look at opportunities in order to pull different levers, particularly in the marketplace that we're in right now with some uncertainties with regards to costs. So as we're moving in with Honeypot and we're looking at that, we can now look at some mine resequencing, that allows us to do some cost savings with regards to some of the capital that we would be spending in terms of developing certain areas. It provides some material handling debottlenecking in our decline. We can now delay some of our paceful expansion capital that we were going to do with regards to our Baraúna area. But most importantly, it allows us some flexibility with regards to the development of our shaft system and the new shaft for the deepening project. All of these we're working through right now. It allows us, as I said, the flexibility to do that. We're working on that. We looked at like we can be delaying some of the capital requirements that we need to be spending originally. We can now put those off without losing any copper production from the operation. So very, very important to us and a very, very big add-on for us as we move forward. And that really plays out with regards to this slide. In this slide, I think we're not the only company that you have in your portfolio or your investing in with regards to this. We've gone to very remarkable change of events with regards to inflation with regards to key inputs. And in the mining industry, the key consumable inputs that we know about diesel, cement, steel costs and how you project those going forward has become quite uncertain with regards to the current environment. We all hope that we get back into a more steady commodities and variables inputs pricing, but it is a challenge at the moment for all of us in the industry with regards to as we continue to look forward, how we project and work towards projecting our operating capital costs on an ongoing basis. That's something everybody is working through, and we're certainly working through with that right now. Moving on to our Xavantina operations. Not much new here this year. What we are doing is we are developing over to our Matinha deposit, which is adjacent to the Santo Antonio Vein and the mine that we're currently operating. We have implemented paste-fill plant here is working extremely well during the year. And the mine is going from strength to strength. We will be coming up with a new mineral reserve and resource update expected in the first half of 2023, and we'll give you some insights into that in the exploration section with regards but continue to move to -- on our NX 60 project, moving this mine up to 60,000 ounces per year of gold production. So let's move on to our projects update. I think it's important before we get there that we just share some of the things that we've done in the past with regards to projects. Historically, we've built mines, we've built the Vermelhos mine on budget and on time. We completed our HIG Mill installation on budget, on time, essentially performing significantly better than what we had originally designed it for. Instead of the 2% to 3% recovery increases we've seen, between 5% and 6% now. We've completed our 15-megawatt cooling plant for the Pilar Mine. And that has come in great. We're actually operating below the temperatures that we actually thought there would be. And this is allowing us now to start to look at the potential, and we're working through this of moving away from the 4-shift system down to a 3-shift system. And that potentially down the road, we can see some cost savings in our operation as we move to that and greater efficiencies in our business. And we don't even talk about it. We've finished completing a small underground mine that should have been operations, and that is beginning production as we speak. And Xavantina, again, completed and built the Santo Antonio mine and have completed, as I mentioned earlier, the paste-fill plant. So we have a team, both outside and within Brazil that has experience and is competent with regards to mine construction. And I think that's important as we continue to move forward and we talk about Tucumã where we are with Tucumã and the development of that operation. So let's talk and bring you up to speed on where we are with Tucumã. The project is currently ahead of schedule with critical earthworks completed prior to the rain season. Some of you I know it went earlier in the year were asking me what is the critical factor that could cause you being delayed in building this. And that was getting the work that we needed to get done before the rainy season. The access roads completed, the drainage around site has been completed. And so we're in really good stead right now. And we've tested it. The Good Lord upstairs gave us an incredible rain event A couple of weeks ago, we had 2.5 inches of rain in 15 minutes. And that tested the system and worked extremely well. So we're very, very happy where we are with regards to the critical path moving the project forward in that regard. The Ball Mill, all of the critical path items have been ordered. The Ball Mill is in transit right now to Brazil, the HIG Mill have been ordered, and so we're in really, really good stead with regards to the project as it continues to move forward. To give you a bit of indication with regards to where we're at with our capital and our visibility. In our earnings news release last week, we gave some guidance with regards to and I think it's important that we spend a little bit more talking about it. Indicative quotes means that we're in negotiation or final tender with regards to the items, contracted items already in place. So our total visibility right now is where you see there on the right-hand side. With regards to unquoted capital and unallocated contingency, we're got about 56 million that's still outstanding that needs to be quoted. Now what is that? That is 2 items. One is a water treatment plant, and the other one is the dry stack tailings. Why both of those haven't been done yet is we are moving towards looking at co-mingling our tailings with regards to our waste dumps. So the requirements that we would have are going to be significantly less than what potentially is shown here in terms of outstanding capital. And as we continue and finalize that work, so we will get greater visibility into this. We haved and, you'll see that we've actually gone spent an additional $5 million of capital that wasn't part of the plan in order to put a liner under our waste dump so that we already are ahead to be able to look at co-mingling, and it looks like we're moving towards a co-mingling strategy right now. So we certainly see with regards to the unquoted and unallocated contingency numbers there that they're either at the top end of the level or potentially coming down. As it respects to contracted items, I think it's important to highlight with respect to that, that there are some variables that aren't controllable, those being diesel prices, especially. When we have worked with the number here, we're working with the higher number that we worked earlier in the year. That number has come down. And so we are tracking lower than what the contracted items are seeing right now. But of course, we cannot give you a definitive until the project is completed with regards to where we're going to end up with those diesel pricing. But let's have a look quickly. For some of you who came on the analyst trip earlier this year, you would have been on that low road on the upper part. This is a new road below. We've actually got a bit of a problem in Brazil right now. People are driving too fast in this road locals. We actually clocked somebody driving 100 kilometers low down this road at one point. So we need to install some speed bumps. But the road is doing extremely well that somebody can take a pickup truck and drive 100 kilometers now down it. So we're very, very happy with respect to how the road has come together. As I said, it has been tested significantly in rain event, and we're very, very comfortable with regards to where that is today. This is the mine access road. You can see going up into the mine. On the right-hand side in the center there, you can see the concrete area. These are 1 of the 4 water waste that we use to remove water in and around the mine. All 4 of those are there with regards to the sumps and our stability to move water. So very, very important that those are in place. There is the top end of the Boa Mountain starting the pre-strip with regards to that. Pre-stripping is ahead of schedule. The company we're using for Gap Zone have done a wonderful job with regards to that. And we're ahead of schedule with regards to pre-stripping, and you'll see we've got 1 more slide there. There's a liner I was telling you about earlier. As I said, we decided to put this line in. So that gives us that flexibility. And what that will allow us to do is while we spend an extra $5 million on line, we do see significant capital being decreased with regards to the dry stack tailings option that we had considered previously because now we'll be using the co-mingling of tails into the waste dump. And then lastly, there we see the pre-stripping activities up at the top of the hill. So moving greatly forward, everything is going great. Right now, the new movement into the earthworks is this is the location in the foreground, you're going to have the crusher, secondary and tertiary crushing near the pickup truck in the middle and then the distance is the plant site. And this is all now being prepared in terms of anticipation of construction beginning in the first quarter of next year in terms of the erection of the various infrastructure in this area. So very happy Tucumã's going great. And as I said, we, as a team, considering the inflationary environment that we've been experiencing this year, I've got to give a huge hats off to Anthea Bath, our COO, and our project manager in Brazil, Tiago, who have done a tremendous job working in terms of this -- in terms of getting our capital to where it is, and we're very, very comfortable with those numbers right now. Another aspect that we're seeing coming out Tucumã, you'll see next year is going to be the updated life of mine plan and the mineral reserve and resources for this project. That's coming in 2 parts. The first part was an 8,000-meter drill program that was done in the areas that we were going to mine for the first 2 years, and that has been followed up with a 30,000-meter drill program that's completed now with regards to including things like the Gap Zone that we have mentioned in the past and other areas that we have discovered in terms of mineralization in and around the deposit and updating that. What has been a positive note is that we've seen a 10% positive grade reconciliation in the 8,000-meter drill program for the first 2 years of production. That's the equivalent of an additional 9,000 tonnes of copper that we didn't expect in the original plan that will be mined in the first 2 years. Now whether that carries through for the rest of the deposit remains to be seen in terms of that reconciliation. But certainly, we're very, very pleased with the start of the work here in terms of how that's coming together. Going back into Caraíba and of course, the deepening project and the shaft for that. What we can show you and we explained to you, as I said earlier, with regards to Project Honeypot now, we have now been able to take the pressure off the development of the shaft, and we're now going to take our time with regards to that. We're currently looking at about a 1-year extension in terms of development of it that will lower our capital requirements on the project on an annualized basis over the next few years. And so we are still moving forward with the project. We're not deferring it. We're not changing anything with it other than just taking our time in terms of getting it built. So what we have here is on the right-hand side, here's a picture, aerial picture off-site I think it's difficult for me to explain to everybody what everything is there, but we've got some pictures that we'll show you here. So in terms of that, foundations have been a cost in terms of the -- and you can see it right in the center there with regards to the shaft itself. Raise-boring is underway. We've already completed 220 meters of that raise-boring is around about 1.8-meter-wide hole then we'll sluff with our mining -- with our shelf contractor UMS as completed. All the winders have been refurbished or are being refurbished. They arrive on site the first half of next year. We are having the head frame fabricated right now, and that will be going on site as well. So we're very happy with respect to where the project is and as we continue to move that forward. We've got some pictures here. Yes, there we go. So this -- on the left-hand side in the foreground, where it looks brown, that's a temporary winder base and foundation Immediately next to that, you'll see 2 towers. That's a batch plant for the concrete. Just above that, next to the concrete truck, you'll see that is the shaft itself. It's got a concrete plug in it right now as we continue to build infrastructure around it. And in the very, very top right-hand corner, you see a hole there -- that is actually the long-term winder house, and it all comes together in a picture later in the presentation. There we go, there's a shaft and the concrete and the foundation is being poured around that. And there we go, and you see the head gear in the foreground, the main winder house in the background, we've got currently showing the temporary winder house that is going to be used as a sync and the associated infrastructure. So the project is in good shape. We're very happy with it, and we're very happy that we have the flexibility, particularly in these uncertain times with regards to inflation that we have the ability to maneuver. And that's one of the great things I can't emphasize enough about Honeypot is the flexibility Honeypot is giving us with regards to the development of our operations and continue to move forward in that regard. And of course, the mill expansion going from 3 million tonnes to 4.2 million. This is all part of Pilar 3.0. Ball mill will arrive in the first half of next year. The Jameson cell second half of the year, the project will be completed by the end of next year. So all moving forward, all going well. I think it's important to touch on some of aspects of our business. And with regards to that, one of the things that we are seeing in Brazil and we're telling the analysts last night, we've got some great success and our ability to now attract talent to our operations in Brazil. Reason being is longer mine life with regards to what we've been able to secure. People now see that there is a long-term security and coming to work our operations, particularly here in Pilar and we've been able to attract great talent. The problem with that is we've got to build a housing crisis in town because everybody wants to move to town, which is a great thing to have. But from our perspective, in terms of our communities. One of the big projects we have is the conversion of our little clinic in town into a full-range hospital. And we're in the process of completing that, that will be completed in the first quarter of next year. It's a fantastic opportunity, but we see this as an important aspect not only from our ESG side of things of helping people in our region. And this hospital will be affecting everybody within our footprint of where we go. So almost 100, 150-kilometer radius from the hospital. But more importantly, with respect to that, it just gives people the notion that there is a long-term future working with Ero and working in the Pilar area. And so just a couple of pictures on that, as I said, is a world-class facility in terms of what's being built there. And you can see in terms of the conversion, we are extremely happy in the community has been fantastic with regards to moving in this direction. The other side of it and Brett is going to take a lot of credit for this with regards to our sustainability and our work in this regard is coming together and continuing to work in terms of getting the data put in the marketplace or into the public with regards to emissions and Scope 1, Scope 2, and we are starting to move towards Scope 3 with respect to that. And as you can see, we benefit, I think 1 of the aspects about Brazil that will be a competitive advantage down the road is effective, we get 99% of that power from renewable energy sources. The fact of that, and we operate as a high-grade operating mine really provides us with the opportunities to get very close to, and we've actually looked at ways that we can now move the company to a net-zero producer. And we'll be working on those over the course of the next couple of years with regards to moving the company in that regard. So very excited about this and how we stack up in the world with regards to a producer of copper, which is the greening metal that's going to be the cornerstone of the greening economy and being a company that's able to do that with almost zero emissions. So let's move on to our exploration update. At the beginning of the year, Mike and Pablo and Makko were here giving a basis of the work that we would be doing this year from an exploration technical standpoint. As you can see, the objectives on the left-hand side, additions of high-grade tonnes in the upper part of the Pilar mine, a very big check with respect to that. Increased mine life of Vermelhos were improving the grade profile. We didn't meet that target. Part of the reason we didn't meet that target is in the first half of the year was we were moving rigs into Project Honeypot to work on that. and we weren't able to spend as much time on Vermelhos this year as what we have seen. And when you see the 43-101 report, you will see that our actual resources and reserves did drop at Vermelhos. However, we do have a slide that is going to perform the cornerstone of our copper work in the Curaçá Valley next year. Continued testing high-priority regional targets. Obviously, we have done that, and we've really moved and focus there, and we'll continue to remain focused for the foreseeable future. Considering if you look at our life right now with regards to copper, the opportunities and looking at nickel really from a regional perspective is one that we're going to just switch our focus for a while and look at that because the opportunities there are significantly high returns if we're able to continue to be successful in what we found so far. In terms of Xavantina, increased mine reserves life. We're working on that. We'll -- as I said earlier, we'll come out with a reserve and resource update in the first half of next year. And progressing with regional exploration program in partnership with Royal Gold. We have continued to see high priority targets. We were hoping to have some drill results available for you. I know the assays didn't come in, in time, but we're having some good success with regards to that work as well. At Tucumã incorporate results of the Gap Zone. As I said, that will be coming out next year. We've completed that drill work. And where we are right now is we are actually testing a new project that we see as additive to Tucumã down the road, and we'll hopefully be able to talk more about that next year. But then we've also tested extension of mineralization beyond. We continue to see mineralization going to depth -- and we're very comfortable in longer-term, that will be an area of focus once the mine is built, and we start looking at an underground option towards the latter part of the mine's life. So let's talk about Vermelhos. So the Vermelhos East Zone, and this is the area that we're talking about here is currently defined by a lower grade compared to what we have mined historically. This area is generally at around about 1% to 1.3%, compared to the main mine, which has historically been between 2% and 3%. Great. Nice grades, but not the same as what they were previously. But it was also defined by very white space drilling from an inferred perspective. And all the yellow area that you see there is all inferred. However, again, Mike and Pablo have been working in this area, and towards the latter half of the year, we started to see some very interesting drill results that suggest that some aspects of the East Zone may be more similar to what we've seen historically in terms of our operations and what we're seeing currently. These are highlighted by hole 1,537, 68 meters at 2.6% copper and then hole 1617, which we recently just completed 12 meters of 4.4% copper. This will form the basis we'll be doing a lot of work here. The rigs will be moving here. We'll be doing less drilling at Pilar and moving the rigs underground rigs to drill this as a priority for next year. And this will form the basis of our work there. And looking now, I thought we're going to keep this one for the end, but I guess we're going to do it now. So let's talk about Nickel. And let's give you a bit of a history of this. So we first -- when we acquired the company, we always felt that this was a magmatic sulfide district that had been misidentified in the academic literature and that nickel had the potential to be found here. In 2018, when we were developing the Vermelhos mine, we started to see areas of pure pentlandtide, blobs of it, meter by meter size, and we tested that and grades were up to nearly 22% nickel, which would make it pure pentlandtide. So that kind of got interest up. And then in late 2018, '19, if you remember the Siriema deposit, we started to see areas of nickel mixing with the copper. But to be honest, we couldn't pull it together. If you look to it as comparable to Sudbury or comparable to Voisey's Bay or Norilsk, using those as the metrics, -- we just couldn't see the similar type of mineralization, the type of rocks that you would see there. But we were seeing the nickel. So I've always said and have said that COVID what we realized about COVID was we couldn't do it greenfields exploration via Zoom. And so Mike and Pablo and the team were somewhat hampered during that time period to be able to go and do exploration. But like anything else, is a silver lining to everything. And during that time period, while they weren't able to travel, they were interacting with some of the top academic people in the world on nickel, people from the University of Leicester, Queen's University here in Canada, a gentleman named John Thompson, who is legendary in our business to try and understand what was going on in the Curaçá Valley with respect to the depositional environment. And some theory started to come together. At the same time, we were able to hire 2 fantastic gentlemen. I use their nicknames Tomazoni and Jacutinga, 2 gentlemen who loved walking in the bush. And a combination of them being on site during that period, working alone, working with the geochemistry and having a university doing significant amounts of geochemistry and field mapping -- and then coming back to the airborne EM survey we flew. We started to see things start to coless. We formed a dedicated nickel team in January of this year, led by Tomazoni and Jacutinga whose only focus was to go and find where the nickel could be in the valley. The first place they went was LZ Zone has never been looked at before. There is no previous mapping. There's no previous drilling. There's nothing here. There's barely any outcrop. And the third hole that they drilled there in April of this year, made was a discovery hole. We found economic grades of nickel over minable widths outcropping at surface. And so we continue to do work at LZ. At the same time, they started to -- you look at the methodology of how they were doing this. They went further north about 3 kilometers to the north, found Gossan, outcropping, trenched it, came back to Pablo. Pablo did what Pablo does and pulling all together, a new target area and that became the VB zone that we drilled. Now VB is interesting. And what's different about VB is you're seeing some of the core outside is the fact that we're seeing massive sulfide. So we have the building blocks with regards to the work that we're doing here with regards to potentially finding high-grade nickel deposits in the Curaçá Valley. Now we see the high-grade copper deposits at Pilar and Vermelhos and based upon academic thinking and knowledge with regards to this around the world, there shouldn't be any reason we shouldn't find similar type to deposits on the nickel side of things. So the team has continued to move forward with regards to that. And we continue to do field mapping. We continue to step up further to the north. This is what we showed you in September, this is a fast-moving event, what's happening. Things are changing daily as we continue to move. I was just down there with Mike 10 days ago in the field with the guys. It's incredible what they're doing and what they're finding. But this was September. As of last week, we've now found another kilometer to north of -- and 3 kilometers to North of VB, some additional outcropping of nickel at surface. So Pablo has done the work. We're now moving rigs into these areas, and we're going to start one. As we are looking at this and as we continue to move forward, we are seeing numerous other areas in the valley that look like this. And so we firmly believe that we're nearly at the tip of the massive iceberg with regards to nickel and the Curaçá Valley. And the opportunity for a company like ourselves to have a district of this size with potentially numerous nickel opportunities is one that give us and team extreme excitement. As we continue look this some of the work and I leave this for those who want to spend some time with Pablo and Mike to understand it all. But this is essentially the 3D modeling of ultramafic and all body this is just in Umburana and what we're seeing in Umburana and so what you saw to see in pulling together of these zones where LZ, the purple is what we drilled. We now seeing out-crop as new trenches the line up with potential of these being and potential for additional for significant nickel mineralization. But the work needs to be done. As I said this is just one area, we have 4 rigs operating in the area we got 3 operating right now and fourth moving in. And this will be the story in terms of our greenfield exploration work over the course of next year. Some people have said there's been some analyst who try to put some numbers around this in term of size. Its too early for that. It's too early try to put numbers around what we're seeing and what we're seeing right now and what -- I think you need to take away from today is that there's something new going is specifically nickel. The opportunity for a company as I said to have a nickel district, potential nickel district starting to unfold. We've all the building blocks within that, that regards to massive sulphite, with regards to all the different texture that we see the rocks, et cetera, to make ultimately a large discovery. We look at it as that is our role for the forseeable future. The opportunity to run through this material through our mill is there. It's a very same process as it for floating copper. So the ability for us ultimately to move down that road and look at producing some of this material is certainly there and one that we're very capable of doing so. But we're not going to looking at building out resources in the near term. For us, it's right now is discovery and what can we find in the valley. And I think I've said all of that and that's just a good example, as you see of what we called a loop textures. And loop textures for those who know nickel in business is an important indicator with regards to massive sulfide and traditional sources of nickel in the world. So moving on to some concluding remarks with regards to my presentation and taken us back to the first slide. We've come along since 2017 in terms of where we are as a company today. We've built out a significant production growth profile. Sort of like what we said at the beginning and managed of you became shareholders with us on this ride when we did an IPO and looked at us and said, "Hey, this team can probably -- I'm willing to give this team a shot to try and see what they can do." And I think we've been able to show you that we're being able to do -- we did what we said we were going to do. But by no means is it over and by no means our work as we look is we now want to fill in the gap above the -- where we see the 100,000 tonnes of production, we want start filling that gap in. And how we going to do that? We certainly the operational on the growth [indiscernible] that we've are revolving around our region nickel and copper in the Curaçá Valley. We've the regional opportunities of Xavantina on the gold side of things. We've Neighboring Property Option that we have around the Xavantina as well, So that gold mine and the opportunity potentially go full production and utilizing the full capacity of that plant is there. And the potential to go from 60,000 ounces to maybe 80,000 ounces is certainly there not tomorrow but we're working towards. The Soma Property Option, as property I told you about early in the presentation near Tucumã. We certainly see that as being as potential additive and we talked about that more in next year with regards to the work we're doing there. We have other opportunities in care as that we hope to be able to talk to you next year about a pretty exciting there. And then we also have a program that we're looking at other parts of Brazil as well for much longer-term future. So yes, we've got a lot on the plate. We've always had a lot on the plate for this company. We're in the process, as I said, building Tucumã is going well. We've got the optionality now on the levers to pool with regards to the Caraíba operations. And specifically, as we look at this uncertain time right now with regards to margins, et cetera, the various levers that we can pull with respect to that. And so yes, we're in a great shape, and thanks very much to everybody for joining us today in person and people on the Internet, and we'll open up the floor for lively questions.

I do have a couple of questions from viewers of the webcast. The first question is with respect to the Tucumã opportunity around co-mingling tailings and waste rock. This your ask what expertise do we have in-house? Or are we working with the third-party engineering firm. How advanced is the geochemistry on this front? And is the waste rock asset-generating or non-asset generating?

All great questions. We're probably the most experienced company in the world with co-mingling of tails. We've been doing it at the Caraíba operations for the last 15 -- I believe, 15 years. It's being done there. So we've got a lot of experience in co-mingling and so we're bringing that expertise. We have the in-house expertise to be able to bring that to bear with regards to Tucumã. With regards to the geochemistry that you're talking about and the work there, we're in the process of finalizing that with regards to acid mine generation and generating of acid mine waters. Hence, the reason with regards to -- we haven't finalized the numbers with regards to the water treatment plant or the co-mingling capital is because we're still in the final stages of working through that. We've taken a relatively conservative assumption right now. We think there may be opportunities to improve upon that. Hence, the reason I was saying that earlier with regards to some of the early results we've got. But we don't want to say too much more than that with regards to the results of that work.

Dave. I do have an additional question from one of our webcast viewers. Can you discuss both your short and long-term plans around the nickel system?

Well, the short-term plan is continue to -- as we said in the presentation, is to continue to identify new opportunities with regards to nickel and that was how many deposits are we able to identify ourselves. And we'll -- that will form the basis of our short-term strategy. And that short-term strategy, I imagine mights 12 to 18 months in terms of that work. Longer term, obviously, is looking to drill out and get the best resource that we can drill of these in order to look at mining them as part of our copper operations. We've done really well with the first 2 deposit set or showing that we found. The question is, are those the best ones? Or are we going to find better ones than that. And certainly, we feel that we've got opportunity to find better than those. So that would be our long-term...

Thanks, David. You talked about your dedicated nickel team and the plan to sort of the focus being on discovery right now. Is there a dedicated copper team looking at greenfield discoveries? Or is that focus still more on sort of near mine addition?

We're right -- Right now, that's going to be near mine. I think right now, when we're looking at copper with a 15-year mine life that we have right now, I think there'll be some people raising eyebrows if we were saying that we're going to do a big copper greenfield program. It's not to say we don't. We continue to do some work there. But certainly, the pressure is off to make a big copper discovery in the district right now. We've got a focus on getting the deep in completed optimizing Honeypot. Honeypot hasn't been fully optimized. We'll continue to do that over the course of next year and the opportunities it brings to us. But from the standpoint of value add from the standpoint of a company that's focused on returns, if we're able to develop nickel opportunities, they certainly give the highest return. And so we're going to do that from a greenfield perspective in the near term.

Could you give an update on your local smelter and how they're doing? And where is it you like -- I guess this is [indiscernible] ourselves the words and nickel [indiscernible] .

Okay. So our local copper smelter PMA, which is located in Salvador about 400 kilometers away from the mine site. They're starting to do better. They had a major issue with an accident of a piece of machinery in the middle of the year. We're working with them and chatting in terms of how we can start bringing them back into our customer mix. Nothing updated yet that we can say we're working with them and another party to see how we can start shipping to them more than we have in the recent past. As I said, we do get some benefits -- significant benefits from selling to them. We'd love to continue to do that, but we're not going to take on financial risks with regards to receivables with regards to them any more than we're doing right now. So they're doing okay. With respect to nickel, nickel would be exported. -- and sent to international nickel smelters. There are no nickel smelters in Brazil with respect to that.

I have another question from one of our webcast viewers. With the capital expenditures around developing a nickel mine be significant. And if so, how would we fund.

Right. Well, we're not even looking at that right now. But if you can take the capital that we've spent in the past, for instance, in developing our Vermelhos mine. If you look at the capital requirements with regards to putting a nickel -- dedicated nickel line in the plant, they aren't that high. We developed Vermelhos for $50 million. This would be an open pit, so certainly less cost than that, and we just truck this material to our plant. I'd be speculating to give you a capital number in terms of what a dedicated line would look like in the plant -- but you're looking at tens of millions, not hundreds of millions of dollars to be able to build that infrastructure. But again, we're not even close to be even contemplating that right now. So I don't want people to think that we're -- you're going to hear from us next week or in the months ahead saying, "Hey, by the way, we're putting in the nickel line. We're not doing that." We're in the process of doing our exploration and growing the business from that perspective in terms of our nickel exposure.

Thanks, David. I'm not sure if we got into it last night or not, but all year long, we've been talking to costs. Can you talk to how the cost -- your cost assumptions in the new reserves may or may not have changed? I'm not sure.

Good question. So with regards to our resource cutoff, we take quite a conservative approach with all of our resources in terms of our long-term metal price. I think we're still sitting at 270 -- 2.75 to 3. Okay, in the resource. But we -- our cutoff grade in the resources, actual cut-off grade hasn't changed. We take a conservative approach, and we can get -- we're not going to get into the reasons why we do that. With regards to the NSR for the reserves, obviously, that changes every year. And so the reserves with regards to that, we take a longer-term average cost inputs, and we apply that to our NSR cutoff on a yearly basis. So you can see reserves moving around with respect to that metric. As we go forward, obviously, it's pretty tricky, particularly as we're now looking to provide our 5-year guidance in the new year with updated capital and operating costs, we're trying to be very thoughtful with regards to that. I think you will see us taking a reasonably conservative approach with regards to our numbers for next year with regards to diesel inputs, steel price inputs, et cetera. And so please be aware of that. As you look in our numbers next year, for next year, we are probably going to take a reasonably conservative approach with regards to the forecast for next year. And that also applies into capital with regards to that.

Have another question from a webcast viewer. Have you continued to investigate the presence of PGMs in the Curaçá Valley?

Yes. PGMs in the Curaçá Valley, we are -- what's the word I can use. We try to. How's that? We are trying. Based upon some of the work that we've done on the nickel now and what we are seeing. We are starting to get a bit of a handle on the distribution of these various metals around. They aren't like the traditional Sudbury and the res type environments where we see the PGM associated with the nickel and/or copper. What we do see is we do see some, but not consistently. I would argue that they are platinum and palladium deposits sitting in the valley by themselves. The question is, how would you find them? And I don't think that's an easy question to answer. So I think with respect to where we are in the PGMs right now, we continue to monitor. We continue to look at it, but we have no clear direction with regards to full understanding of what's happening with PGMs right now.

And we have one additional question from a webcast viewer. Do we have any plans to add an SXEW plans at Caraíba?

At the moment, no. As you know, we do have a mothball SXEW plant. But as it stands right now, the exploration for oxide material is not a priority for us. And so you won't be seeing us putting and restarting that up that plant anytime soon. Great. Well, if there's no further questions, and I must have been very comprehensive. So that was great, but I'm sure there'll be some questions afterwards, the we'll go a question.

I have a few questions. When you talked about building up that hospital. Is there a capital costs associated with those?

There was. It's pretty much all sunk, it was $4 million.

And do you guys expect any regional benefits of tax rates or anything end result kind of just ticking on it infrastructure for the region anything...

No. What we -- this project, for instance, what we have actually done as a company, we've lent the money to the nonprofit organization that runs the hospital, and then as they get through medical aid, essentially in Brazil, they slowly pay that back. So -- but no, we don't get necessarily significant tax breaks for doing any of that.

And then with Tucumã. There was a $50 million that unquoted. Are there any material items you can point to that kind of makeup that $50 million?

Yes. The -- so those 2 items, as I mentioned in the presentation. One is the water treatment plant. Pretty standard stuff. These aren't complicated and water treatment plants that you find them all over the world. And the second part of that was related to the dry stack tailings operation. And as I said, it looks like -- what we'll be doing is doing a very small dry stack tailings operation for the first couple of years as we build up waste rock and then we'll transition over from that into putting our co-mingling of hotels through the waste rock. And so that's why that number is uncertain right now. I'd like to think that we'll -- that will be the high end of that number. I think the number could potentially come down based upon some of the early things that we're seeing. But again, we can't get drawn into that until the work has been completed.

Thanks. So appreciate a lot of the work you've done derisking Tucumã development ahead of the rainy season. Maybe just talk through what you've budgeted because obviously, even operations can get impacted, so just what type of interruptions have you budgeted through construction?

What type of...

Interrupts like rain delays, weather events that you have budgeted?

So with respect to that, 1 of the biggest thing was getting the infrastructure put in. If we have not done that, we would be delayed, right? What I can tell you operationally wise right now, following large rain events that we do get, the mine is able to start operating 45 minutes later, which is tremendous. I don't think we've budgeted for that, and that's why we've seen the pre-stripping ahead of schedule. And they are doing a very, very good job with regards to that. With regards to any other delays in schedule, we don't see anything there. The big risk factors with delay in schedule was obviously key items. And so far, everything that we've got in terms of critical items are in place. Now could there be some slippage right now around the world. One of the issues is transformers and seeing Transformers. We are in the process of securing those transformers right now being built in Brazil. So we don't have to rely on foreign transformers with regards to that part of the business. But so far, we don't see anything with regards to that in terms of delay factors.

That's great to hear. And then maybe just on the CapEx commitments you've got out there. Maybe just kind of the breakdown on the contracts where there are variable components, obviously appreciate the diesel and labor pass-throughs, but maybe some of the other items that are more. You've locked in unit prices, but there might be variable components or just some more detail on that?

So on the contracted work that we've got, particularly -- so the biggest single contract we have is the Fagundes mining contractor. And they are doing all of the pre-stripping and they'll be actually mining the deposit for us for the first 5 years. With respect to them, the variable costs are twofold, is 1 is diesel and 1 is labor. And so far, right now, based upon the numbers that we started with them, diesel prices are lower. With regards to labor, that's on an individual basis with regards to the pass-throughs and what they're going to be doing this year. We are certainly seeing they'll probably have a higher labor pass-through rate than we will this year in terms of negotiations with the unions. We're taking a more conservative approach and working with our union this year on labor increase pricing. So that's the best I can give you with regards to that. With regards to the mills. Obviously, that's been purchased, the HIG Mill contracts, all of that. We will be going in, and we do have some with regards to the erection of the mill buildings and the construction of the various crushing units, et cetera, et cetera. All of those are being negotiated off current concrete price cement pricing, steel pricing, et cetera. So the numbers that you see are the current numbers.

I have 1 last question from a webcast viewer. How have you been able to maintain such capital discipline at Tucumã in this inflationary environment?

It's called Anthea Bath, who is our COO, who is very, very good at beating people a lot bigger than her over the head. Now that's flipping. But yes, it's been dedication by Anthea, her team and Tiago and his team on site with regards to the negotiations of this. Yes. I mean, earlier it was very interesting earlier in the year, when the first expressions of interest came out where everything was and where we are now has taken significant amount of negotiation and work with the various suppliers in order to knock some of those numbers down and get them into line. And I think it's partly because I think as we've moved into the second half of the year, people are a little bit more comfortable in terms of some visibility of what's going to happen going forward. As opposed to what they were at the beginning of the year, where inflationary pressures were significantly higher. So that's the real reason why we've been able to do a significant amount of emphasis and discipline with regards to negotiation of the various contracts. Wonderful. Well, thank you, everybody for coming today and for those of you who are joining us on the Internet. Just a little bit of brief update on what we're going to be doing going forward. And that's some next steps and catalysts for you. Yes. So ongoing is obviously the project execution that we're doing, Tucumã, et cetera, and you'll be hearing about that on our quarterly updates as we release our financials every quarter. ongoing exploration, nickel and copper. We've always been -- we used to put out an acceleration update every quarter. We've moved away from that. What we will be doing with regards to updating you as if we make any new significant discoveries i.e., probably more on the nickel than the copper side of things, we will be releasing that to the marketplace in a timely manner. We generally only do those. We won't be releasing hole-by-hole unless we get a 30-meter 6% nickel hole then, of course, we will. But in general, we want to try and understand the various areas that we're drilling before we discuss them because we want to know that there's some meat on the bone, so to speak. Consolidated 5-year guidance, including CapEx and OpEx will be released in January of next year. And then in the first half of the year, both the Tucumã and the Xavantina updates mineral reserves and resources. So please be on the lookout for that. I know we're going to be having Mike and Pablo do another technical session with their team sometime early next year, coming back through to Toronto. So I know there's a lot of people who enjoy those sessions with Pablo and Mike. And so please be on the lookout for that and that invitation that will come out in the new year. But again, thanks very much to everybody. I'd like to just thank our team, my business partner, Noel, and everybody has done tremendous amount of work in pulling this presentation together. It's a real credit to everybody on this team. We're not a big team, but they seem to have incredible horsepower. So thanks, guys. Really appreciate it for the work that you've done as well. Thanks, everybody. Thank you. Bye-bye.